Related papers: Central Clearing Valuation Adjustment
In this note we sketch an initial tentative approach to funding costs analysis and management for contracts with bilateral counterparty risk in a simplified setting. We depart from the existing literature by analyzing the issue of funding…
Transaction costs play a critical role in asset allocation and consumption strategies in portfolio management. We apply the methods of dynamic programming and singular perturbation expansion to derive the closed-form leading solutions to…
Absence-of-Arbitrage (AoA) is the basic assumption underpinning derivatives pricing theory. As part of the OTC derivatives market, the CDS market not only provides a vehicle for participants to hedge and speculate on the default risks of…
We consider the pricing and hedging of counterparty credit risk and funding when there is no possibility to hedge the jump to default of either the bank or the counterparty. This represents the situation which is most often encountered in…
We have created a framework for analyzing subscription based businesses in terms of a unified metric which we call SCV (single customer value). The major advance in this paper is to model customer churn as an exponential decay variable,…
We develop a framework for price-mediated contagion in financial systems where banks are forced to liquidate assets to satisfy a risk-weight based capital adequacy requirement. In constructing this modeling framework, we introduce a…
Conditional value-at-risk (CVaR) is a prominent risk measure in financial engineering, energy systems, and supply chain management. In these domains, Markov decision processes (MDPs) with a long-run CVaR criterion effectively mitigate cost…
We consider a liquidation problem in which a risk-averse trader tries to liquidate a fixed quantity of an asset in the presence of market impact and random price fluctuations. The trader encounters a trade-off between the transaction costs…
We propose Context-aware Video-text Alignment (CVA), a novel framework to address a significant challenge in video temporal grounding: achieving temporally sensitive video-text alignment that remains robust to irrelevant background context.…
This paper studies a finite-horizon portfolio selection problem with non-concave terminal utility and proportional transaction costs, in which the commonly used concavification principle for terminal value is no longer applicable. We…
This paper develops a rigorous mathematical framework for analyzing Concentrated Liquidity Market Makers (CLMMs) in Decentralized Finance (DeFi) within a continuous-time setting. We model the evolution of liquidity profiles as…
We discuss investment allocation to multiple alpha streams traded on the same execution platform with internal crossing of trades and point out differences with allocating investment when alpha streams are traded on separate execution…
This paper closely examines theoretical and practical aspects of the widely used discounted cash flows (DCF) valuation method. It assesses its potentials as well as several weaknesses. A special emphasize is being put on the valuation of…
Large language models have revolutionized natural language processing but face significant challenges of high storage and runtime costs, due to the transformer architecture's reliance on self-attention, particularly the large KV cache for…
We consider the framework proposed by Burgard and Kjaer (2011) that derives the PDE which governs the price of an option including bilateral counterparty risk and funding. We extend this work by relaxing the assumption of absence of…
The problem of market clearing is to set a price for an item such that quantity demanded equals quantity supplied. In this work, we cast the problem of predicting clearing prices into a learning framework and use the resulting models to…
In this paper, we propose a clearing model for prices in a financial markets due to margin calls on short sold assets. In doing so, we construct an explicit formulation for the prices that would result immediately following asset purchases…
A multi-dimensional extension of the structural default model with firms' values driven by diffusion processes with Marshall-Olkin-inspired correlation structure is presented. Semi-analytical methods for solving the forward calibration…
It was recently shown that dynamic programming (DP) methods for finding static CVaR-optimal policies in Markov Decision Processes (MDPs) can fail when based on the dual formulation, yet the root cause of this failure remains unclear. We…
This paper mathematically models a constant-function automated market maker (CFAMM) position as a portfolio of exotic options, known as perpetual American continuous-installment (CI) options. This model replicates an AMM position's delta at…